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Recession Slows Health Costs, but Just Wait Until 2014 Recession Slows Health Costs, but Just Wait Until 2014

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Recession Slows Health Costs, but Just Wait Until 2014

The recession helped slow the growth of U.S. health costs in 2010, but expenses will pop up in 2014 when the biggest provisions of the health care law take effect, federal government researchers reported on Thursday. After that, however, rising costs should flatten out.

Actuary Sean Keehan and colleagues at the Centers for Medicare and Medicaid Services said that national health spending will grow by 5.8 percent per year through 2020, 1.1 percent more than what is projected for the gross domestic product.



“As a result, the health share of the gross domestic product is projected to increase from 17.6 percent in 2009 to 19.8 percent by 2020,” they write in the journal Health Affairs. The share was at 17.6 percent in 2010, they said.

The researchers also revised slightly the often-quoted government estimate that 32 million people will get insurance because of the law. Keehan said that 30 million people will gain coverage by 2020—nearly 23 million of them in 2014, when the main provisions take effect.


These newly covered people will start seeing doctors and taking drugs, the report projects. But they will be younger and healthier than the usual Medicaid population, and won’t use hospitals as much—something that should slow down rising costs.

“They are projected not to use a lot of care,” Keehan said in a telephone interview. “People that are healthy might see a doctor one or two times and nothing more. Some people will be relatively inexpensive to insure.”

Nonetheless, the report predicts that state, local, and federal government will shoulder more health spending and will pay for just under 50 percent of all health costs by 2020, up from 44 percent in 2009. The federal share alone of health spending will rise from 27 percent in 2009 to 31 percent in 2020 as more baby boomers reach 65 and join Medicare, and as the government starts to subsidize insurance plans.

The health reform law requires all states to set up health insurance exchanges, which are a kind of marketplace for buying coverage. These exchanges will add 22.9 million new people to insurance plans, CMS projects, some of them with employer-sponsored coverage. But they’ll also boost Medicaid spending by more than 20 percent and private health insurance costs by 9.4 percent. That will fuel growth in national health spending from 5.5 percent in 2013 to 8.3 percent in 2014.


“The expanded Medicaid and private insurance coverage are expected to increase demand for health care significantly, particularly for prescription drugs and physician and clinical services,” the report reads.

The report estimates that national health spending in 2010 was $2.6 trillion. The 3.9 percent growth in health spending in 2010 was the lowest ever seen. Health spending grew 4 percent in 2009.

The health care law would increase the growth in average health spending by 0.1 percentage point over 10 years, according to the report—a piece of news the White House latched onto.

“The bottom line from the report is clear: More Americans will get coverage and save money, and health expenditure growth will remain virtually the same. But the report doesn’t tell the whole story,” White House Deputy Chief of Staff Nancy-Ann DeParle wrote on a White House blog post.

DeParle said that some of the health reform law’s changes, such as the proposed accountable care organizations that aim to get doctors and hospitals to coordinate care, are not included in potential cost savings.

“We know these new provisions will save money for the health care system, even if today’s report doesn’t credit these strategies with reducing costs,” DeParle wrote.

Republican leaders, not surprisingly, take a different view. “The central promise of the White House’s partisan health law was that it would reduce health care costs, but unfortunately, as the report shows, this law is only making things worse," Sen. Orrin Hatch, R-Utah, said in a statement.

"The report by CMS’ chief actuary found the new health law will double the size of health care entitlements to $2.3 trillion by 2020; increase private health insurance premiums by 9.4 percent in 2014 (4.4 percentage points higher than without the health law)," added the statement from Hatch, ranking member of the Senate Finance Committee.

The report predicts spending on prescription drugs will rise more than 5 percentage points, to 10.7 percent in 2014, the report says. Health experts who support the health care law say this will eventually hold down health costs. People who take drugs as prescribed to control blood pressure, cholesterol, blood sugar, and other symptoms are less likely to have heart attacks, strokes, and other expensive emergencies.

This article appears in the July 28, 2011 edition of NJ Daily.

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